While there are countless types of loans available, most of them fall into one of two categories – secure or unsecured. There is a notable difference between each type of loan, either of which may be better suited to your situation, so letbs take a closer look at what each one offers.
The Difference Between Secured and Unsecured Loans
With a secured loan, the borrower must provide an asset as collateral against the loan, providing a guarantee to borrowers should the loan not be repaid. If the loan is not paid, the borrower then takes ownership of the asset, selling it to cover the cost of the debt.
There are various assets that can be used for a secured loan, such as property, a vehicle, jewellery and antiques, or stocks and other investments.
Unsecured loans require no assets as collateral, with borrowers typically using your credit history to determine whether the loan is worth providing.
Which is Best?
It depends on the individual circumstances. For instance, a secured loan is typically easier to qualify for, often comes with lower interest rates, and lets you borrower higher amounts, but this comes at the massive risk of losing the asset should you fail to repay.
Unsecured loans arenbt as much as a risk for borrowers as there is no asset to lose, but this makes them a higher risk for lenders, so the interest rates are almost always higher than a secured loan.
However, borrowing small amounts over shorter periods offsets the higher interest rates, making them worthwhile in various situations.
Comments